The Fed aims to repeat Greenspan’s 1990s masterpiece
Subscribe to enjoy similar stories. The Federal Reserve famously guided the economy to a soft landing in 1995, paving the way for the economic boom that followed. Can it do so again? With Wednesday’s sizable rate cut, it is off to a good start.
In 1994, the Fed raised rates aggressively to tackle inflationary pressures. By 1995, the labor market was clearly cooling. Then, as now, there weren’t signs of an imminent recession.
But in May 1995 there was a negative reading for monthly jobs, helping push the Fed to the first of three cuts the following month. That scary number turned out to be an anomaly—jobs bounced back the following month. But looking at a three-month moving average to smooth out volatility, the cooling trend was clear.
In the three months through June 1995, the economy of that time had added an average of 126,000 jobs, down from an average of 332,000 in the three-month period a year before. Fast forward to 2024: Jobs figures have again been bouncing around month-to-month, but in the three months through August, job creation averaged 116,000 a month, compared with 211,000 a year earlier. The Fed’s three quarter-point rate cuts in 1995 and early 1996 succeeded: By mid-1996 job creation had rebounded to average around 250,000 a month, and inflation didn’t become a major concern for a long while after.
Why then has the Fed opted to start its easing program this time around with a more aggressive 50-basis-point cut? It isn’t, as some have fretted, that the Fed sees much bigger economic risks than the rest of us in the economy today. In fact, Fed Chair Jerome Powell sounded fairly positive in Wednesday afternoon’s press conference. “The U.S.
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